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Sunday, July 27, 2014

The IRS Scandal, Day 444

Saturday, July 26, 2014

The IRS Scandal, Day 443

Friday, July 25, 2014

The IRS Scandal, Day 442

Thursday, July 24, 2014

The IRS Scandal, Day 441

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July 24, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, July 23, 2014

The IRS Scandal, Day 440

IRS Logo 2House Ways & Means Committee Press Release, Lerner Hard Drive Was "Scratched"; IRS Ignored Advice to Use Outside Experts to Recover Data:

Despite early refusals to make available IT professionals who worked on Lois Lerner’s computer, Ways and Means Committee investigators have now learned from interviews that the hard drive of former IRS Exempt Organizations Director Lois Lerner was “scratched,” but data was recoverable.   In fact, in-house professionals at the IRS recommended the Agency seek outside assistance in recovering the data.  That information conflicts with a July 18, 2014 court filing by the Agency, which stated the data on the hard drive was unrecoverable – including multiple years’ worth of missing emails.

“It is unbelievable that we cannot get a simple, straight answer from the IRS about this hard drive,” said Ways and Means Committee Chairman Dave Camp (R-MI).  “The Committee was told no data was recoverable and the physical drive was recycled and potentially shredded.  To now learn that the hard drive was only scratched, yet the IRS refused to utilize outside experts to recover the data, raises more questions about potential criminal wrong doing at the IRS.”

It is also unknown whether the scratch was accidental or deliberate, but former federal law enforcement and Department of Defense forensic experts consulted by the Committee say that most of the data on a scratched drive, such as Lerner’s, should have been recoverable.  However, in a declaration filed last Friday by the IRS, the agency said it tried but failed to recover the data, but is not sure what happened to the hard drive afterwards other than saying they believe it was recycled, which, according to the court filing means “shredded.”

Further complicating the situation, the Committee’s investigation has revealed evidence that this declaration may not be accurate.  A review of internal IRS IT tracking system documents revealed that Lerner’s computer was actually once described as “recovered.”  In a transcribed interview on July 18, IRS IT employees were unable to confirm the accuracy of the documents or the meaning of the entry “recovered.”

“It is these constant delays and late revelations that have forced this investigation to go on so long,” Camp added.  “If the IRS would just come clean and tell Congress and the American people what really happened, we could put an end to this.  Our investigators will not stop until we find the full truth.”

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July 23, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Tuesday, July 22, 2014

The IRS Scandal, Day 439

What Are The Chances? (An IRS Love Song):

(Hat Tip: Glenn Reynolds.)

Wall Street Journal, New Information Deepens the Mystery of the Missing IRS Emails:

The mystery of the missing IRS emails has deepened.

An IRS official told congressional investigators in an interview last week that — despite what agency leaders thought previously — some of the missing IRS emails might still exist on backup tapes.

Those tapes were thought to have been recycled several years ago, destroying the data.

Washington Post:  6 Questions About the IRS’s Missing Emails, From IT Experts:

Did the IRS intentionally lose e-mails to cover up potentially incriminating communications relating to the agency’s targeting controversy, or did the records go missing because of bad technology management?

As for the latter question, few organizations are in a better position to make an assessment of the situation than the International Association of Information Technology Asset Managers, which deals with these types of issues on a regular basis.

The group, which runs the only worldwide certification program for IT asset managers, released six questions on Monday that it thinks lawmakers and federal investigators should ask about the missing e-mails of former IRS official Lois Lerner, a central figure in the targeting affair.

  1. What happened to the IRS’s IT asset managers who appear to have disappeared at a key juncture?
  2. Where is the documentation to prove that the IRS wiped or destroyed Lois Lerner’s hard drive?
  3. Were the drives destroyed by an outside vendor or firm? If so, by who, and can they verify the destruction?
  4. What are the IRS’s specific policies and procedures on document retention when hard drives are damaged or destroyed?
  5. What is the IRS’s disaster-recovery policy?
  6. Where are Lois Lerner’s Blackberry e-mails?

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July 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Monday, July 21, 2014

The IRS Scandal, Day 438

Sunday, July 20, 2014

The IRS Scandal, Day 437

Saturday, July 19, 2014

The IRS Scandal, Day 436

Friday, July 18, 2014

The IRS Scandal, Day 435

IRS Logo 2Forbes:  Despite Yearlong Investigation Of IRS, DOJ Just Learned Of Lost Emails From News Media, by Robert W. Wood:

For over a year now, the DOJ and FBI have been investigating the IRS targeting scandal. Yet a DOJ lawyer testified before a Congressional committee that even a year into its investigation, DOJ had no advance notice of the 2 years’ worth of emails the IRS says went missing years ago. ...

[T]his is astonishing. On June 13, 2014, the IRS admitted that it lost Lois Lerner’s emails from January 2009 through April 2011. DOJ says it learned of the missing emails after June 13, 2014 from the media! Oh, those two-years’ worth of emails to and from the key IRS figure who refused to testify to Congress about her job as a top IRS official? They covered the precise period of time when the alleged IRS targeting of Tea Party groups took place.

Republican Rep. Ron DeSantis asked Deputy Attorney General James Cole, “So you actually read about it in the press and nobody in the IRS ever went to the Justice Department to give you a heads-up, knowing you were conducting the investigation that some evidence may have been destroyed?”

“Not before the 13th of June,” Cole replied. “I think we learned about it after that, from press accounts,” Mr. Cole told House Oversight and Government Reform subcommittee chairman Rep. Jim Jordan. Rep. Jordan pressed Mr. Cole, “Is it a big deal to you Mr. Cole, a big deal to the Justice Department that the head of the Internal Revenue Service waited two months to tell the United States Congress, two months to tell the American people, and, most importantly, two months to tell the FBI and the Justice Department that they had lost Lois Lerner’s emails?”

Mr. Cole’s response seemed practically Presidential, “It depends on what the circumstances were behind,” Cole responded. The whole story may eventually come out, but the investigation has taken on a decidedly pale complection. Now there’s a new DOJ investigation underway into the IRS missing emails. One might wonder if it will ever turn up even a smidgen of corruption.

Meanwhile, a federal court may prove to be tougher. In a suit against the IRS brought by Judicial Watch, U.S. District Judge Emmet G. Sullivan ordered the IRS to explain what happened to Lois Lerner’s emails. The DOJ has done its best to avoid having to explain much of anything to anyone.

It is another seedy chapter that casts further doubt on the tax system. In 2013, the IRS targeting scandal was already brewing, and Ms. Lerner asked an IT specialist at the IRS if the IRS saved texts? They are not saved automatically, came the response, but since saving them was possible, be careful. “Perfect,” Ms. Lerner answered.

So the switch to texts was an even better way to adopt the IRS version of Moscow Rules. Even President Obama’s new IRS Commissioner Koskinen testified that he was completely unaware of the instant-messaging system. Still, he told a House committee he didn’t think Ms. Lerner’s response about the texts meant she was happy that IRS instant messages weren’t saved. ‘Perfect’ must mean different things to different people.

Forbes

Wall Street Journal:  Justice Department Learned of Lost IRS Emails From Press, Official Says:

Justice Department officials didn't learn until June that the Internal Revenue Service had lost two years' worth of emails that could shed light on the agency's treatment of conservative groups, a top Justice official said.

Deputy Attorney General James Cole told a congressional panel Thursday that the agency learned from press accounts in June that the IRS had lost the emails. The Justice Department announced more than a year earlier, in May 2013, that it was investigating the alleged IRS targeting of conservative groups, after an inspector general found tea-party groups faced unusual scrutiny and lengthy delays as they sought tax-exempt status.

Republicans said the disclosure supports their claim that the Justice Department hasn't been aggressive in pursuing its investigation of the matter.

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July 18, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, July 17, 2014

District Court Joins Loving, Holds IRS Lacks Statutory Authority to Regulate Tax Return Preparers

RTRPThe U.S. District Court for the District of Columbia yesterday followed Loving v IRS, 742 F.3d 1014 (D.C. Cir. 2014), and held that the IRS lacks statutory authority to regulate tax return perparers.  Ridgely v. Lew, 1:12-cv-00565 (D.D.C. July 16, 2014).

Prior TaxProf Blog coverage:

July 17, 2014 in IRS News, Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 434

IRS Logo 2Wall Street Journal:  Justice Dept. to Investigate Lost IRS Emails:

The Justice Department is conducting a criminal investigation into the loss of Internal Revenue Service emails that could shed light on the agency's treatment of conservative groups.

As part of its criminal probe into the IRS's treatment of politically active conservative groups, the Justice Department is "investigating the circumstances of the lost emails from [former IRS official Lois Lerner's] computer," according to prepared testimony by James Cole, the deputy attorney general. Mr. Cole is set to appear at a hearing scheduled for Thursday before a panel of the House Oversight and Government Reform Committee. The Wall Street Journal reviewed his prepared testimony on Wednesday. ...

Mr. Cole's comments underscore the potential seriousness of the email loss, which has roiled congressional probes of the matter and angered some top GOP lawmakers. The IRS has blamed the loss on a crash of Ms. Lerner's hard drive—a common occurrence at the agency, officials say. They add a backup tape also was routinely recycled after six months.

Some Republicans regard the timing of the email loss in 2011 as suspicious, however, noting that it came just days after Republicans began questioning the agency's treatment of politically active conservative donors and groups.

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July 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, July 16, 2014

National Taxpayer Advocate Releases Mid-Year Report to Congress

TASNational Taxpayer Advocate Nina Olson today released (IR-2014-78) her semi-annual report to Congress, FY 2015 Objectives Report to Congress:

[The report] identifies key issues, goals and activities TAS will focus on during the upcoming fiscal year. These include the implementation of the Taxpayer Bill of Rights, resolving refund delays for victims of return preparer fraud, and the need for minimum standards for tax return preparers. This year's report also includes a Volume II that outlines formal IRS responses to the 25 most serious taxpayer problems identified by the NTA in her 2013 Annual Report to Congress, as well as the NTA’s comments on those responses.

July 16, 2014 in IRS News, Tax | Permalink | Comments (1)

CPAs Sue IRS, Say its 'Voluntary' Regulation of Tax Preparers Lacks Authorization From Congress

RTRPFollowing up on my prior post, CPAs: IRS's 'Voluntary' Regulation of Tax Preparers Lacks Statutory Authorization From Congress, Contravenes D.C. Circuit Decision, and Violates Administrative Procedure Act:  the American Institute of CPAs yesterday sued the IRS in the U.S. District Court for the District of Columbia over its new "Voluntary" Tax Return Preparer Program:

July 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

The IRS Scandal, Day 433

IRS Logo 2Forbes:  Is the IRS Scandal Microsoft's Fault?, by Gene Marks:

Hmm….maybe Microsoft is to blame for this whole IRS-email thing.

Just last week, “…a second federal judge has now ordered the IRS to explain under oath how the agency lost emails from former division director Lois Lerner, the woman at the heart of the Tea Party targeting scandal. U.S. District Court Judge Reggie Walton told Obama administration lawyers on Friday he wants to see an affidavit explaining what happened with Lerner’s hard drive. The IRS claims her computer suffered a crash in 2011 that wiped her email records at the time clean.”

Ah-hah! It’s a brilliant ploy. Can’t provide emails requested by the courts? Then just blame the computer guys! The computers crashed. It was a blue screen of death. You know what’s it like with Windows, right? We’ve all had this happen to us before. Who hasn’t had their computer crash? Curse you, Microsoft! This must be your fault! You’ve foiled us again!

I don’t know if the IRS did anything wrong – that’s for the courts to decide. But I do know a little something about information technology. And this is an IT issue. Judges. Lawyers. IRS people. Congressmen. The Media. Everyone’s trying to get to the bottom of the lost emails. But there’s one group of people missing from the conversation: the tech people. I don’t mean the ones who work for the IRS. They’re scrambling, I’m sure. The ones who should be subpoenaed are the ones who work at IT firms, like mine, across the country. They will tell a different story. When we hear that emails were just “lost,” especially in 2011, we scratch our heads in amazement. Ask any IT firm, the clients they serve, or the IT people that work in corporate America: e-mails don’t get “lost.” And frankly, computers don’t really crash very often. That was a great excuse in…oh…1995. But not anymore.

In other words: you can’t blame Microsoft. Nice try. ...

[D]id Ms. Lerner’s computer really crash, wiping out all her data, including emails? That story’s really hard to believe for anyone with an IT background. It’s easy to blame Microsoft for our problems. That used to be a great excuse. But that excuse is getting harder and harder for anyone, even the IRS, to make.

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July 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, July 15, 2014

House Votes to Cut IRS Budget 13% (21% Below Obama's Request)

IRS Logo 2Bloomberg:  IRS Budget Sliced 13% as U.S. House Constrains Tax Agency:

The House of Representatives voted to cut the IRS’s budget by $1.14 billion in another blow to the tax agency.  ... The changes would leave the IRS with a budget of $9.8 billion for the fiscal year that starts Oct. 1, 13 percent below this year’s funding level and 21 percent below the administration’s request.

July 15, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 432

IRS Logo 2The Weekly Standard:  More Than a Smidgen, by Stephen F. Hayes:

The facts are simple. The IRS systematically targeted conservative and Tea Party groups after their activism proved decisive in the 2010 midterm elections—Obama’s famous “shellacking.” The effects of this targeting were widespread. Some Tea Party groups were neutered in the months before the 2012 presidential election.

Few of the explanations or justifications of this targeting provided by IRS leaders and Obama administration officials have held up. IRS officials at first denied that any targeting had taken place. That was false. They later claimed that the targeting had involved only low-level employees in the Cincinnati office. That was false. They argued that conservative groups weren’t singled out, that progressive groups were subject to the same level of scrutiny. That was false. They argued that the IRS has complied with all requests for information from Congress. That was false.

Three years ago, on June 3, 2011, Representative Dave Camp, chairman of the House Ways and Means Committee, wrote to the IRS requesting all information—including emails and other communication—related to the alleged targeting of conservative groups. Ten days later, Lois Lerner, the woman at the center of the targeting, reported to the IT team at the IRSthat her hard drive had crashed. IRS leaders, questioned repeatedly about Lerner’s emails in subsequent congressional hearings, made no mention of the hard drive crash. Earlier this summer, IRS director John Koskinen disclosed that thousands of Lerner emails—including many of those sent to executive branch agencies—were missing because of the alleged computer problems. From her first appearance before a congressional committee, back in May 2013,Lerner has exercised her right against self-incrimination and refused to testify.

Last week brought a significant new revelation: an email in which Lerner seeks advice about keeping information from Congress. ... She knew that the IRS scandal was about to explode.

At the time Lerner sent the email, IRS officials had recently learned that the Treasury inspector general would be issuing a report the following month criticizing the agency for its targeting of conservative groups. And Lerner’s email came just before she planted a question in the audience at an American Bar Association conference on May 10 in an effort to get out in front of the controversy.

These facts lead to one conclusion: Lois Lerner and other top IRS officials were desperate to keep information on the targeting of conservative groups from Congress. 

It’s crucial to understand why. And that will require a special prosecutor.

Town Hall:  Reality of the IRS Scandal, by Bruce Bialosky (Founder, Republican Jewish Coalition):

People who are not distraught about Lois Lerner and the IRS must have never actually dealt with the organization. As someone who has for 36 years, it is clear that at best we are dealing with fabrications and at worst outright lies and criminal actions. The fact that any American --let alone the national press, Congressional Democrats, and the White House – might not be agitated is dangerous for our society.

First, let us be clear: despite billions of dollars of taxpayer money being spent on improving their computer system, it is still rank. Second, the Internal Revenue has gradually over my career asserted more and more control at higher levels leaving agents and revenue officers less flexibility. That means there is less opportunity for an agent in the field to make their own decisions about any matter.

If you ever sat in an IRS office or waited endlessly on the telephone, you would know that this entire scenario of lost emails is not remotely plausible.

Las Vegas Review-Journal editorial:  Lerner Must Testify Without Immunity in IRS Scandal:

Last week, an Arizona Republic editorial stated that the only way to move this investigation forward is to get Ms. Lerner to talk — via immunity from prosecution. Ms. Lerner needs to talk, all right, but in light of the past week’s news, she cannot possibly be given immunity. The IRS regularly operates with absolute ruthlessness and no mercy in its dealings with the public, and in this case, we’ve seen nothing but complete contempt from the highest-ranking agency officials, all as the administration looks the other way and President Barack Obama himself says there’s “not even a smidgen of corruption” within the IRS.

Remember, this isn’t about partisan sniping. This is about an executive branch agency working to influence the outcome of the 2012 election in favor of the party — and the president — in power.

It’s one thing to offer reduced sentences or penalties for cooperating, but full immunity must be off the table. Ms. Lerner and the IRS are long overdue for a heavy dose of karma.

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July 15, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (8)

Monday, July 14, 2014

The IRS Scandal, Day 431

IRS Logo 2National Review:  The ‘Independent’ Counsel Mirage: Don’t Hand the IRS Investigation Over to a Special Prosecutor, by Andrew C. McCarthy:

I confess to being amazed that President Obama and his trusty attorney general, Eric Holder, have not mollified their detractors by appointing an “independent counsel” to investigate the IRS scandal.

“Why,” you ask, “would Obama sic a prosecutor with independence from Holder’s Justice Department on a component of the Obama administration?” The real question is: Why hasn’t he?

The disconnect here lies in the public’s perception — and, perhaps, the perception of some congressional Republicans who ought to know better — of what an “independent counsel” really is. Independence is a mirage: Obama’s critics crave an evenhanded investigation of executive lawlessness and, in the Washington fashion, they have convinced themselves that wishing can make it so. As it actually exists, however, an “independent counsel” would be tailor-made for letting the administration and the IRS dodge accountability. ...

You can have political accountability for abuses of power or you can have an “independent” counsel and “the process.” Political accountability is driven by congressional investigations and court cases brought by citizens whose rights have been trampled. It is messy, combative, and political, but the malfeasance it uncovers can result in the removal of corrupt officials from power.

By contrast, “the process,” under the steady hand of “independent” counsels, is neat, silent, and somnolent. In fact, once it starts, that may be the last you hear about it until President Obama pardons everyone on his way out the door.

Time:  After “Tea Party” Scandal, IRS to Rubber Stamp Tax-Exempt Status for Most Charities:

Amid ongoing controversy over its scrutiny of non-profits, the Internal Revenue Service has decided it will no longer screen approximately 80% of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other non-charitable groups from misusing the tax code.

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July 14, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, July 13, 2014

The IRS Scandal, Day 430

IRS Logo 2Washington Post:  More IRS Smidgens Show Up. ‘Perfect.’, by Ed Rogers:

Anyone paying attention to the Internal Revenue Service scandal has been waiting for the next smidgen to drop. Well, two more hit pretty hard this week. At the president’s next encounter with the media, I will scream collusion if no one asks him for his exact definition of a “smidgen,” and if he thinks he has seen a smidgen of corruption yet. At this point, only the most gullible or culpable can continue to claim there is no compelling evidence in this case. Given the delays, lies and stonewalling, there is no viable argument against a special prosecutor.

In a stunning revelation this week, it was disclosed that former IRS official Lois Lerner told colleagues, “we need to be cautious about what we say in emails” and then proceeded to ask the IRS IT department, in an e-mail, “if [instant messaging] conversations were also searchable.”  When she was told they were not, she e-mailed back, “Perfect.” This is a smoking gun e-mail in that it makes plain she had a cover-up in mind. There is no other plausible explanation. ...

[A]s long as Lerner stays cool and the Obama Department of Justice has her back, the administration obviously thinks it can run out the clock on this scandal. But these revelations are definitely meaningful smidgens. At what point does a flock of smidgens become irrefutable evidence that deserves an independent examination?

Judicial Watch press release:

Judicial Watch announced today that on June 17, 2014, it filed a Freedom of Information Act (FOIA) lawsuit against the Department of Justice (DOJ) seeking the number of hours DOJ Attorney Barbara Bosserman expended in the investigation of the IRS targeting of conservative organizations seeking tax exempt status during the 2010 and 2012 elections cycles (Judicial Watch v. U.S. Department of Justice (No. 1:14-cv-01024)).

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July 13, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, July 12, 2014

The IRS Scandal, Day 429

IRS Logo 2Wall Street Journal editorial:  Judging the IRS: A Pair of Court Orders Seek Answers About the Vanishing Emails:

Congress has been working for more than a year to get to the bottom of the IRS political targeting scandal, and the Obama Administration has resisted across the board. So hurrah to the judicial branch, which this week stepped into the fray with orders that could force the IRS to start coughing up some answers.

U.S. District Judge Emmet G. Sullivan on Thursday ordered the IRS to provide for him, within a month, a sworn declaration explaining how the agency came to lose two years' worth of email belonging to former Director of Exempt Organizations Lois Lerner. Judge Sullivan also assigned a federal magistrate, John Facciola, to conduct his own query into whether Ms. Lerner's emails might be obtained by other means. The order suggested that Judge Sullivan was far from satisfied with the IRS's cursory explanations of crashed hard drives and irretrievable information.

On Friday a second federal judge, Reggie B. Walton, issued another order, demanding the IRS provide under oath an affidavit outlining what happened to Ms. Lerner's hard drive, the qualifications of anybody who attempted to retrieve her lost email, and the status of the IRS Inspector General's investigation into these issues. Judge Walton gave the IRS one week to respond.

Now we're getting somewhere. The IRS has slow-rolled document production for Congress and then it waited two months to tell its legislative overseers that Ms. Lerner's emails had vanished. The Justice Department and FBI, meanwhile, have leaked to the press that their probes have found nothing wrong.

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July 12, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Friday, July 11, 2014

The IRS Scandal, Day 428

IRS Logo 2Wall Street Journal:  U.S. Judge Orders IRS to Explain How it Lost Lerner’s Emails:

A federal judge on Thursday ordered the Internal Revenue Service to explain how it lost two years’ worth of a former official’s emails, and tapped a magistrate judge to find out whether the documents can be obtained from other sources.

At a hearing in a conservative group’s lawsuit, U.S. District Judge Emmet Sullivan gave the IRS until Aug. 10 to provide a sworn declaration explaining how the email loss occurred. The IRS previously has said that the emails were lost because the top agency official’s computer crashed in 2011, and backup tapes were routinely reused after six months.

Wall Street Journal:  Lerner's 'Perfect' Plan for IRS Emails: The Tax Official Warned Colleagues About Creating Electronic Records:

Less than two weeks after the IRS inspector general had circulated a draft report on the agency's unlawful targeting of conservative groups, Ms. Lerner reached out to IT specialist Maria Hooke to inquire about IRS record-keeping of internal communications. Ms. Lerner wrote:

"I had a question today about OCS [Microsoft Office Communications Server]. I was cautioning folks about email and how we have several occasions where Congress has asked for emails and there has been an electronic search for responsive emails – so we need to be cautious about what we say in emails. Someone asked if OCS conversations were also searchable – I don't know, but told them I would get back to them. Do you know?"

Ms. Hooke responded that individual employees could choose to save their communications, but that the software was not set to automatically save any messages.

Ms. Lerner's response: "Perfect."

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July 11, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, July 10, 2014

TIGTA: IRS's 17% Error Rate in Processing Amended Tax Returns Caused $2.1 Billion of Erroneous Tax Refunds

TIGTA The Treasury Inspector General for Tax Administration yesterday released Amended Tax Return Filing and Processing Needs to Be Modernized to Reduce Erroneous Refunds, Processing Costs, and Taxpayer Burden (2014-40-028):

The IRS received more than 4 million amended tax returns in Fiscal Year 2012. This audit was initiated because previous TIGTA audits have identified problems with IRS processes for verifying claims on amended tax returns. The objective of this review was to determine whether the IRS has controls in place to ensure that claims for refunds on amended tax returns are appropriate. ...

TIGTA’s review of a statistical sample of 259 amended tax returns claiming tax refunds of $500 or more in Fiscal Year 2012 identified 44 (17 percent) tax returns for which the IRS issued potentially erroneous tax refunds totaling $103,270. Based on the sample results, TIGTA estimates the IRS may have issued more than $439 million in potentially erroneous tax refunds claimed on 187,421 amended returns in Fiscal Year 2012. As such, the IRS could issue more than $2.1 billion in potentially erroneous tax refunds claimed on amended tax returns over the next five years.

To reduce erroneous refunds, processing costs, and taxpayer burden, the IRS could revise Form 1040, U.S. Individual Income Tax Return, to allow for corrections to original tax return filings and expand e-filing to include amended tax returns. TIGTA estimates that the IRS could have potentially saved more than $17 million in processing costs during Fiscal Year 2012 if it had allowed taxpayers to e-file their amended tax return.

July 10, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 427

IRS Logo 2New York Times, Republicans Say Ex-I.R.S. Official May Have Circumvented Email:

Lois Lerner, the former Internal Revenue Service official at the center of an investigation into the agency’s treatment of conservative political groups, may have used an internal instant-messaging system instead of email so that her communications could not be retrieved by investigators, Republican lawmakers said Wednesday.

The accusation against Ms. Lerner, the former head of the agency’s division on tax exemption, came nearly a week after the I.R.S. gave investigators thousands of her emails, including some that were destroyed when her hard drive crashed in 2011 but were recovered from the accounts of people with whom she had corresponded.

The Republican lawmakers said that in one of those email exchanges — which took place in the spring of 2013, just days after the Treasury Department’s inspector general concluded in a report that agency officials had treated conservative groups improperly — Ms. Lerner asked another official whether messages sent over the instant-messaging system were recorded. When she was told that they were not, she responded, “Perfect.”

Republican lawmakers interpreted that response as an expression of relief.

“Ms. Lerner says, ‘Wow, I know I’ve gotten rid of the emails when the computer crashed two years earlier, but I’d better double check on this intraoffice instant-messaging capability we have at the Internal Revenue Service,’ and she says ‘perfect’ when she learns that it’s not traceable, not trackable, not stored,” Representative Jim Jordan of Ohio said during a hearing of a House oversight subcommittee.

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July 10, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, July 9, 2014

The IRS Scandal, Day 426

Tuesday, July 8, 2014

The IRS Scandal, Day 425

IRS Logo 2New York Post editorial:  Audit the IRS!:

True the Vote has an idea that is the fantasy of every taxpayer who’s ever found himself sitting opposite an imperious tax collector: Audit the IRS.

On Thursday, the IRS will have to persuade federal Judge Reggie Walton why this shouldn’t happen.

True the Vote calls itself “the nation’s largest nonpartisan, voters’ rights and election integrity organization.” It is one of the conservative outfits whose application for nonprofit status was targeted by IRS authorities. And in its motion asking for an outside specialist in data recovery to be permitted to conduct a forensic audit into the lost Lois Lerner e-mails, True the Vote makes an eminently reasonable case:

“Even if the ill-timed hard drive ‘crash’ was truly an accident, and even if the IRS genuinely believes that the e-mails are ‘unrecoverable,’ the circumstances of the spoliation at issue cry out for a second opinion,” reads the motion.

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July 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, July 7, 2014

IRS Spending: Administration v. Refundable Credits

Following up on last Monday's post, Spending by the IRS, 1970-2014:  Joe Kristan links to this additional chart from the Cato Institute, which divides IRS spending into administration and refundable credits:

IRS Budget 2

July 7, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 424

IRS Logo 2New York Times editorial: The Real Internal Revenue Scandal:

There is a scandal going on at the Internal Revenue Service, but it has nothing to do with Lois Lerner or her missing emails. House Republicans have not given up on their noisy crusade to tie Ms. Lerner to what they imagine to be widespread political corruption within the Obama administration, but all they have proved is that the I.R.S. is no better at backing up its computer files than most other government agencies.

No, the real scandal is what Republicans did to cripple the agency when virtually no one was looking. Since the broad Tea Party-driven spending cuts of 2010, the agency’s budget has been cut by 14 percent after inflation is considered, leading to sharply reduced staff, less enforcement of the tax laws and poor taxpayer service.

As the economist Jared Bernstein noted recently in The Washington Post, a weakened I.R.S. enforcement staff will be unable to make a dent in the $385 billion annual gap between what taxpayers owe and what they pay — an unintended tax cut, mostly for the rich, that represents 11 percent of this year’s spending.

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July 7, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, July 6, 2014

The IRS Scandal, Day 423

IRS Logo 2Arizona Republic editorial:  Grant Lois Lerner Immunity in IRS Case:

Congress is facing a fork in the road in the Internal Revenue Service's tea party-harassment scandal.

It may have to take both. 

But, first, Republicans in the House must come to terms with a decision they really — really — do not wish to make.

They will have to offer immunity from prosecution to Lois Lerner, the IRS retiree who has refused to testify and whose emails so amazingly disappeared when her computer hard drive crashed.

And if they fail to get to the bottom of the IRS shenanigans through Lerner? Well, there is a Plan B. They can appoint a special prosecutor — and accept all the expense and power-wielding baggage that comes with such an appointment.

Following the contempt-dripping theatrics of IRS Commissioner John Koskinen, the GOP lawmakers have no choice but to take one or both of those dramatic steps. ... Lerner, of course, has been no more willing to get to the bottom of events than Koskinen. Or, for that matter, the Justice Department, whose own half-hearted investigation is languishing ... somewhere. Or, for that matter, the White House, which simply could order agencies that may have communicated with Lerner, et al, to cooperate.

Their determined resistance is beginning to tell its own suspicious story. If Lerner dodges Congress again, despite immunity, there is always the special prosecutor route. It may be the only way to make sure this episode is never repeated, by administrations of either party.

Above the Law, Some Thoughts About the IRS Scandal and Spoilation of Evidence:

On Tuesday, U.S. District Judge Reggie Walton issued an order to hear oral arguments from lawyers representing the Internal Revenue Service and the conservative nonprofit True the Vote. True the Vote is one of the conservative groups claiming IRS improperly targeted its application for nonprofit status based on the group’s political and philosophical affiliation. True the Vote filed a motion for a preliminary injunction and expedited discovery on Monday, calling for an independent forensics examination of any IRS hard drives, servers, or other computer hardware involved in the government agency’s possible targeting of conservative nonprofits’ applications for tax-exempt status. It wants an outside computer expert to try to ascertain how and when any electronic evidence, such as former IRS Commissioner Lois Lerner’s emails, may have been lost. Also, it would be great if the government didn’t spoliate — I mean “recycle” — any more evidence….

In its motion, True the Vote argues that the law obligated the IRS to preserve potentially relevant evidence, including electronically stored information. The IRS knew that the hard drives and emails of Lerner and other officials were of significant legal interest. By the time the agency supposedly began disposing of Lois Lerner’s computer hardware, Congress was publicly investigating the IRS scandal. Pro-Israel group Z Street, Inc. filed suit in August 2010, alleging similar improper targeting as True the Vote claims. In September 2013, True the Vote itself sent a litigation hold letter to counsel for the IRS officials, including Lerner, who the group believed were involved in IRS wrongdoing. The government clearly had notice that the computer equipment and information should be preserved as potential evidence.

If the account alleged in True the Vote’s motion is accurate, opposing counsel was none too cooperative. Despite earlier attempts to confer with IRS counsel, attorneys for True the Vote did not learn of the missing emails of Lois Lerner and other IRS officials until Friday, June 13, 2014, when news reports publicized the loss. On that day, IRS finally informed Congressional investigators that the agency could not recover two years’ worth of Lerner’s emails. Apparently, Lerner’s hard drive crashed in 2011, its data was unrecoverable, and the government had no available back-ups.

Talk about bad luck — finding out on Friday the 13th that two years’ worth of emails spanning the time period when you believe the federal government committed illegal acts have been “lost.”

Of course, it is hard to believe in bad luck when federal-government malfeasance is involved. Did IRS officials violate True the Vote’s constitutional rights by improperly singling out their application for tax-exempt status as the conservative group claims? Was this politically motivated targeting the result of overzealous lower-level employees? Did members of the Obama administration orchestrate this campaign to punish the administration’s political enemies? We don’t know. That’s the kicker about the spoliation of evidence.

IRS explanations of how Lerner’s emails during the crucial time period were lost have not inspired much confidence, under the circumstances. Perhaps the only reason to believe that the IRS and Obama administration are telling the truth about the lost evidence and the IRS scandal is that their explanations look so extraordinarily — almost laughably — suspicious that someone would have to have “courage” the size of the U.S. Treasury to claim such things with a straight face.

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July 6, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, July 5, 2014

High-Level Departures Roil IRS's International Division

IRS Logo 2At a time of unprecedented attempts to thwart tax avoidance with FATCA and BEPS, and controversy swirling over the rush of U.S. corporations to use inversions to reduce their U.S. tax exposure, the IRS's Large Business & International Division has been stung by the sudden departures of several key people:

  • Michael Danilack (Deputy Commissioner (International)), resigned effective July 2
  • Laura Prendergast (Deputy Commissioner (Domestic)), resigned effective July 3
  • Samuel Maruca (Director, Transfer Pricing Operations), resigned effective August 1
  • Diana Wollman (Director, International Strategy), resigned July 1
  • Richard McAlonan (Director, Advance Pricing and Mutual Agreement), resigned effective June 27

Tax Analysts:  Major Shake-Up at LB&I?,  by Jaime Arora, Amy S. Elliott, & Andrew Velarde:

One practitioner told Tax Analysts that a coming reorganization may have spurred the departures. ... A former IRS official, now in private practice, said that Danilack agreed to lead the IRS's international unit on the condition that the Service would realign its Large and Midsize Business Division (LMSB) in a way that would separate international tax administration from domestic tax administration. The 2010 LMSB/LB&I realignment meant that agents working on international issues would ultimately report to Danilack, giving him greater management authority.

Under the realigned structure, the domestic and international deputy commissioners had equal authority to resolve issues. The former official said that under the LMSB structure, international issues were ultimately resolved by the domestic territory managers, directors of field operations, and industry directors. Since the realignment, "there's not been anyone with a 51 percent vote to resolve issues for a particular taxpayer" aside from going to LB&I Commissioner Heather Maloy for a tiebreaker vote, and "that's not good management," the former official said.

With industry directors and Danilack's team having similar levels of authority under the realigned LB&I, neither could overrule the other, the former official said. "No one was in charge," he said. "It was the Achilles' heel of the organization."

The former official added that Danilack's departure indicates that he probably argued for getting tiebreaker authority, making the case that the larger assessments are often those stemming from international issues, and lost. "I knew he was frustrated," the former official said. Danilack declined to comment for this article.

Tax Analysts Blog:  What’s Behind the Brain Drain at the IRS?, by Christopher Bergin:

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July 5, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 422

IRS Logo 2Fort Wayne Telegram:  Federal Government Email From the Inside, by Richard Greene:

Since senior federal official Lois Lerner and I served together in the Bush Administration, surely she must have received the same sort of regular briefings about using the government’s email system as I did. ...

I was told that anything I did with my computer or Blackberry device would result in a permanent record being created. Only classified communications would be encrypted, and all the rest would be discoverable in any legal proceedings. That record would be available to virtually anyone but especially useful to Congress or the Justice Department in the event of their need to examine electronic communications dealing with public affairs.

Any notion that I could just erase something after it had been sent was conclusively dashed when the hard drive inside my desktop computer in my office crashed. The tech guy came in, quickly removed the drive and told me he would try to fix it. I explained to him that my concern was that all my data, including email that I often searched through, was on that drive and could be lost.

His reply was to assure me that every stroke of my keyboard had been backed up multiple times in the local office and off site as well, and nothing would be lost. If he couldn’t fix the drive he had removed, he would simply set up a new one and transfer everything that was there from the moment it failed and it would be completely restored.

Maybe my experience is why the latest polls are finding about 75 percent of the American people believe Congress should keep investigating what happened to Lerner’s emails.

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July 5, 2014 in IRS News, IRS Scandal | Permalink | Comments (0)

Friday, July 4, 2014

The IRS Scandal, Day 421

IRS Logo 2Wall Street Journal: House Lawmakers Press on IRS Probe:

House lawmakers are planning to step up pressure on the Justice Department to act on a contempt-of-Congress citation against former Internal Revenue Service official Lois Lerner.

Legislators view the citation—passed by the House in May—as a potential pressure point in their broader efforts to force action by the Justice Department in the controversy concerning IRS treatment of conservative tax-exempt organizations, committee aides said. ...

Federal law says the local U.S. attorney has the "duty" to present the contempt citation to a grand jury. Contempt of Congress is a misdemeanor punishable by a fine of up to $100,000 and a year in prison, under an 1850s statute. Republicans on the committee note the statute in demanding that prosecutors pursue the case.

But "it remains unclear whether the 'duty' of the U.S. Attorney…is mandatory or discretionary," a Congressional Research Service report says. Courts generally grant prosecutors wide discretion in deciding which matters to pursue.

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July 4, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, July 3, 2014

The IRS Scandal, Day 420

IRS Logo 2Forbes:  The Time Has Come: Defund The IRS, by Steve Forbes:

The current IRS scandals are now bigger than those of Watergate in the 1970s and Teapot Dome in the 1920s. The most powerful and feared government agency was turned loose on groups of citizens who the White House and congressional Democrats felt threatened their power. President Franklin Roosevelt used the IRS against opponents, as did Presidents John Kennedy, Lyndon Johnson and Richard Nixon. Conservative think tanks were rightfully suspicious they were being singled out for tax audits during the Clinton Administration. But none of those abuses was of the sweeping nature of the ones that began in 2010 and have taken place against ordinary citizens who have spontaneously come together in countless organizations to fight the current regime’s egregious policies and threats to liberty.

[Defenders of liberty, especially Republicans, should seek to defund] almost all of the IRS after the midterm elections, which the Democrats will lose badly. There can be no more continuing resolutions that allow the tax-collection agency to operate business as usual, even though Congress hasn’t passed an appropriations bill. If a continuing resolution is necessary to avoid a government shutdown, then by all means pass one–but specifically do a near-zeroing-out of the IRS (the only exception would be a handful of clerks to process refunds) until these scandals are fully and credibly investigated. If the President vetoes such a budget resolution, the onus is on him, not Congress.

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July 3, 2014 in IRS News, IRS Scandal | Permalink | Comments (1)

Wednesday, July 2, 2014

The IRS Scandal, Day 419

IRS Logo 2Wall Street Journal:  Judge Sets Hearing on Group's Push to Investigate Lost IRS Emails:

A federal judge scheduled a hearing for next week on a grass-roots conservative group's request to investigate missing emails at the Internal Revenue Service, as part of the group's lawsuit against the agency.

U.S. District Judge Reggie Walton ordered the hearing on Tuesday, after conservative group True the Vote filed a motion seeking to speed up discovery and "preserve and prevent further destruction" of documents and electronic data. Among other things, the group wants a forensic expert to figure out how the emails were lost and examine whether any of the missing data can be recovered.

The hearing is set for July 11 in U.S. District Court in Washington, D.C.

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July 2, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Tuesday, July 1, 2014

Bernstein: Why the GOP Really Wants to Defund IRS

Washington Post op-ed:  Why the GOP Really Wants to Defund IRS, by Jared Bernstein:

In one of the great D.C. key-dangles (“look over here, not over there!”), congressional conservatives have everyone looking the other way while they try to defund the Internal Revenue Service. No question, recent IRS screw-ups are feeding right into their opponents’ plans. But let’s not lose sight of what’s really going on here: This is just a different way to try to shrink government, accommodate tax evasion and even undermine the implementation of health reform. ...

To collect taxes, we need an amply funded IRS, and therein lies the real scandal. The details are in this new Center on Budget and Policy Priorities paper by Chuck Marr and Joel Friedman, who document “…significant cuts that have occurred in IRS funding, which remains well below its 2010 level…. The cuts have led the IRS to reduce its workforce, severely scale back employee training, and delay much-needed upgrades to information technology systems. These steps, in turn, have weakened the IRS’s ability to enforce the nation’s tax laws and serve taxpayers efficiently.” ...

Marr and Friedman identify these additional facts of the real case:

  • The figures below show a 14 percent fall in the agency’s inflation-adjusted budget (figure 1) along with an 11 percent decline in its staffing levels (figure 2), 2010-2014. IRS staff assigned specifically to enforcement is down 15 percent.

Bernstein_IRS_combo

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July 1, 2014 in IRS News, Tax, Think Tank Reports | Permalink | Comments (7)

Yin: The Most Critical Issue Facing Tax Administration Today -- And What to Do About It

George K. Yin (Virginia), The Most Critical Issue Facing Tax Administration Today -- And What to Do About It:

This very brief paper contains the text of the keynote address delivered on June 19, 2014 to a research conference in Washington, DC on Advancing Tax Administration, co-sponsored by the IRS and the Tax Policy Center.

July 1, 2014 in IRS News, Scholarship, Tax | Permalink | Comments (1)

The IRS Scandal, Day 418

Monday, June 30, 2014

Spending by the IRS, 1970-2014

Outlays

Data here. (Hat Tip: Len Burman.)

June 30, 2014 in IRS News, Tax | Permalink | Comments (5)

The IRS Scandal, Day 417

IRS Logo 2Tax Analysts Blog:  Lost Lerner E-mails Latest Example of IRS Death Wish, by Jeremy Scott:

Democrats rushed to Koskinen’s defense. That is, perhaps, understandable, even though much of what the IRS has done during this scandal is indefensible. Democrats probably want to defend their president’s pick to head the IRS, and maybe they want to try to change the narrative heading into a potentially disastrous midterm election. But the reality is that the IRS isn’t doing them any favors. There’s only so much incompetence and disingenuous behavior that can be run through a political spin machine. The Democrats’ reflexive defense of Lerner (whose conduct can’t be excused) and their apparent willingness to accept any explanation from Koskinen (who didn’t even try to adequately explain why he hid information on the lost e-mails from February until late June) is baffling. Democrats weakly attempted to paint the GOP as on a witch hunt for a conspiracy, as though the IRS’s mismanagement and appearance of bias weren’t enough to justify congressional inquiry.

Is there a conspiracy or coverup? Christopher Bergin eloquently explained why it’s hard to know and why that doesn’t matter because tax administration has been damaged either way. And that’s the key point. Lerner, former acting Commissioner Steven Miller, and many other officials have engaged in conduct that might have irreparably harmed the Service’s reputation on Capitol Hill and that once again undermined the public’s trust in the nation’s tax collector. And Democrats’ desperate attempts to rush to the president’s defense to limit the damage to their party’s electoral chances will not fix that problem. Instead, the solution will take serious soul-searching at the IRS and a commitment to being genuinely open and transparent with lawmakers and taxpayers.  

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June 30, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Sunday, June 29, 2014

The IRS Scandal, Day 416

IRS Logo 2Tax Analysts Blog:  The IRS Has Been Set Up, by Christopher Bergin:

The IRS’s job is to collect taxes, and historically it’s been pretty darn good at that. But over the years, Congress has tasked the Service with many things that really have nothing to do with collecting revenue. ... So let’s have the IRS administer the healthcare system. Anybody want to hazard a guess about how that’ll go? ...

And that brings us back to section 501(c)(4), through which the IRS has been charged with regulating a part of the political fundraising process. This involves making precise calculations of the amount of political activity engaged in by social welfare organizations seeking tax-exempt status. How is the IRS supposed to determine that? And now added to this paradigm, apparently, is the political pressure being put on the IRS. So if a Democrat is in the White House, all conservative organizations are bad. And when a Republican is in the White House, I’m betting the heat will be on the IRS to determine that all liberal organizations are bad. Is that how this works?

I don’t know if the IRS has been politicized. Until recently that possibility would have been unthinkable. But the potential of the 501(c)(4) rules to be a setup for the politicization of the IRS is enormous. You simply can’t have the tax collector refereeing the people who provide it with its budget. It’s understandable – although, I think, shortsighted – that the Republicans want to starve the beast for its lack of transparency in the investigation of how it handled social welfare organizations. But the beast (and I don’t believe the IRS is a beast) is in real trouble now.

Section 501(c)(4) should be repealed immediately, and the IRS should be tasked with doing its job: collecting taxes. What are the odds that politicians will do that? Nil, because they’re the only ones benefiting from this mess.

But we are where we are, and I am truly worried. If this agency has been politically corrupted, it will not be able to function. And that leaves us with a question. Who's going to collect the revenue? 

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June 29, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Saturday, June 28, 2014

WSJ: What Taxpayers With Offshore Accounts Need to Know Before Confessing to the IRS

Wall Street Journal Tax Report:  The Hazards of Offshore-Account Disclosure: Here's What Taxpayers Need to Consider Before They Confess, by Laura Saunders:

FATCATaxpayers should think carefully before entering a new Internal Revenue Service program for offshore-account holders whose conduct wasn't "willful," experts say.

"The term 'willful' has traps for the unwary, and people are falling into them," says Barbara Kaplan, a criminal tax lawyer at Greenberg Traurig in New York.

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June 28, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 415

IRS Logo 2Tax Update Blog:  Why Did Lois Lerner Work at the IRS?:

This question came to mind in discussing the Lerner emails with a reader, who noted how a Politico piece about the Grassley email chain revealed this week pointed out this high-level IRS leader’s evident lack of tax skills:

Former ex-IRS tax exempt division chief Marcus Owens said the email chain shows Lerner knew very little about tax law, as there would have been nothing wrong with Grassley and his wife attending such an event, so long as the income was reported. It is nothing that rises to the level of referral for examination,” Owens said.

It is a mystery.  Her Wikipedia biography shows that she was a cum laude graduate of Northeastern University and the Western New England College of Law.  She worked as a high-level attorney at the Federal Election Commission, but moved to IRS as “Director Rulings and Agreements” in the exempt organizations branch of the IRS.  She rose to Director of Exempt Organizations in 2006.

Her resume, then, is that of a bureaucrat, rather than a tax practitioner or specialist.  She apparently never practiced tax law before moving into her important policy position — important in the tax world, anyway.

This sort of thing may be common in the federal bureaucracy.  It’s likely that she got a raise for the move, or something.  But it seems that while you could take the girl out of the FEC, you couldn’t take the FEC out of the girl.  She took it upon herself to monitor the electoral process with the tools of the tax law.

Megan McArdle explains why that was a bad idea:

This exchange suggests that Lois Lerner not only didn’t have a good, basic grasp of the tax law she was supposed to be administering, but also viewed her job as an extension of her work at the Federal Election Commission.

That’s not what the IRS is for. The IRS is not given power over nonprofit status in order to root out electoral corruption or the appearance of it. It is given power over nonprofit status in order to make sure that the Treasury gets all the revenue to which it’s entitled

Unfortunately, politicians see the tax law as the Swiss Army Knife of public policy, and it’s unsurprising that an IRS bureaucrat would see it the same way.

Moreover, Lerner’s overbroad instincts also seemed to kick into high gear when Republican politicians were involved. Of course, such reports might well be survivor bias — Republicans are complaining about Lerner, while Democrats who also had run-ins with her may be keeping quiet for fear of fueling the fire. At this point, however, the fire is burning merrily on its own. If Democrats who encountered Lerner’s overzealous use of her powers are out there, they’d do well to come forward and tell their stories to reassure Americans that even if her actions were overbroad, they weren’t broadly partisan.

They would have emerged by now.  The stats, as we noted yesterday, demonstrate one-sided enforcement.

Chart

It’s unlikely that Ms. Lerner came to the IRS with the idea of using her position to harass the opposition.  She just happened to be in a position to do so when applications from groups she didn’t like — perhaps that she even saw as dangerous and wrong — came across her desk.  It’s possible that she did it entirely on her own.  And that’s the scariest thing — a bureaucracy that moves on its own to squash ungoodthinkers is much more dangerous than a top-down conspiracy.  It may be hard to replace an administration, but it’s almost impossible to replace a bureaucracy.

New York Times:  Is The Times Ignoring a Scandal at the I.R.S.?:

Has The Times been interested enough in the politically charged events involving the Internal Revenue Service? Many readers don’t think so. ...

I asked David Joachim, the Washington-based reporter and editor who has written several of the I.R.S. stories, to respond to this reader and others who believe The Times has not pursued the story aggressively enough.

Mr. Joachim responded by email. He noted that reader comments on the stories show how polarized the feelings are:

One side sees a Nixonian abuse of power and cover-up; the other sees an effort to smear the White House for electoral gain in the midterms. That stuff brings out passions. ... We think we’ve paid copious attention to this story, and we will continue to do so. It’s an important story.>/em>

My take: The Times was somewhat late in beginning to cover the latest development about the lost emails. My office had begun to field several days’ worth of reader protests on the lack of attention when the first story finally went online. Despite that slow start and the quiet display of the subsequent stories (an analytical piece might have been a good choice for the front page), The Times has given its readers insightful coverage of a situation heavily clouded by partisan politics.

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June 28, 2014 in IRS News, IRS Scandal | Permalink | Comments (5)

Friday, June 27, 2014

CPAs: IRS's 'Voluntary' Regulation of Tax Preparers Lacks Statutory Authorization From Congress, Contravenes D.C. Circuit Decision, and Violates Administrative Procedure Act

RTRPIn February 2014, the D.C. Circuit unanimously held that the IRS lacked the statutory authority to regulate tax return preparers.  Loving v IRS, No. 13-5061 (D.C. Cir. Feb. 11, 2014).  For an extensive analysis of the decision, see this TaxProf Blog op-ed by Steve Johnson (Florida State).

The IRS yesterday announced a "voluntary" program to regulate tax return preparers.  IRS Commissioner John Koskinen stated:

[T]he IRS had started a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials. But we had to suspend that program because the courts ruled that we didn’t have the legal authority to require education and testing. So we’re launching a voluntary program as a temporary substitute. It’s called the Annual Filing Season Program.

I say “temporary” because we have been urging Congress to enact a proposal in the President’s Fiscal Year 2015 Budget that would give us the authority for mandatory oversight of return preparers. This voluntary program is not the ideal solution. But until legislation is enacted, we still have a responsibility to taxpayers and to our tax system to keep moving forward with our efforts to improve service to taxpayers.

See also the statement by National Taxpayer Advocate Nina Olson.

In a 14 page letter to Commissioner Koskinen, the American Institute of CPAs argues that the program is illegal:

We write today to express our strong concern that the IRS’s proposed program—in which tax return preparers would receive an IRS certificate for display in return for completing a continuing education program that includes a comprehension assessment (the “proposed program”)—would cause significant legal problems that may ultimately frustrate the IRS’s goals, confuse the public, and lead to litigation.  ...

First, no statute authorizes the proposed program. The IRS’s general authority to administer the tax code under 26 U.S.C. § 7803 does not provide an adequate basis to proceed. Because federal agencies may act only pursuant to a valid delegation of authority by Congress, the IRS may not implement the proposed program. This fatal flaw cannot be overcome by the IRS. That no statutory provision expressly prohibits such a program does not legitimize an otherwise illegitimate act. 

Second, and relatedly, the proposed program will inevitably be viewed as an end-run around Loving v. IRS, which held that the IRS lacks authority to regulate tax return preparers under 31 U.S.C. § 330. To be sure, the regulations invalidated in Loving were mandatory, and the proposed program is purportedly voluntary. But in reality tax return preparers would face an overwhelming, compelled incentive to participate in the IRS’s credentialing program, meaning that the proposed program will be de facto mandatory. In the wake of Loving, that is impermissible.

Third, the IRS has evidently concluded, in developing the proposed program, that it need not comply with the notice and comment requirements of the Administrative Procedure Act (“APA”). This is incorrect. ...

Finally, the current proposal is arbitrary and capricious because it fails to address the problems presented by unethical tax return preparers who defraud their clients, runs counter to evidence presented to the IRS, and will create market confusion. ...

We believe that the proposed program is unlawful and improper. We continue to believe that additional regulation of tax return preparers might yield significant benefits and that the IRS can achieve these objectives while remaining consistent with Loving and other statutory limitations on the IRS’s authority.

June 27, 2014 in IRS News, Tax | Permalink | Comments (11)

The IRS Scandal, Day 414

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June 27, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, June 26, 2014

Death of Former IRS Commissioner Johnnie Walters, Refused President's Request to Audit His Enemies

WaltersNew York Times, Johnnie M. Walters, Ex-IRS Chief, Dies at 94:

Johnnie M. Walters, a commissioner of the Internal Revenue Service under President Richard M. Nixon who left office after refusing to prosecute people on Nixon’s notorious “enemies list,” died on Tuesday at his home in Greenville, S.C. He was 94. ...

Nixon had fired his first IRS commissioner, Randolph W. Thrower, for resisting White House pressure to punish political opponents. Mr. Thrower, who served from 1969 to 1971, died at 100 in March. ...

Mr. Walters had not been told of Nixon’s other job requirements, as revealed in a White House conversation recorded on May 13, 1971. “I want to be sure he is a ruthless son of a bitch, that he will do what he’s told, that every income-tax return I want to see I see, that he will go after our enemies and not go after our friends,” the president said.

Mr. Walters failed to follow this script — which was unknown to him — when John W. Dean III, the White House counsel, summoned him to his office on Sept. 11, 1972. Mr. Dean handed him the “enemies list” of 200 people, most prominent Democrats, whom he wanted investigated.

"I was shocked,” Mr. Walters said in a 1997 interview with The Washington Post. “John, do you realize what you’re doing?” he remembered saying. “If I did what you asked, it’d make Watergate look like a Sunday school picnic.” ...

Several days later, Mr. Walters went to his immediate boss, Treasury Secretary George P. Shultz, showed him the list and recommended that the IRS do nothing. Mr. Shultz told him to lock the list in his safe.

By Sept. 15, Nixon had been told of Mr. Walters’s reluctance to follow instructions. “Why the hell did we promote him?” H. R. Haldeman, the White House chief of staff said, according to a tape. Nixon told Mr. Dean, “You’ve got to kick Walters’s ass out first and get a man in there.” The president added that Mr. Shultz needed to make sure that Mr. Walters left if he wanted to keep his own job.

Mr. Walters gave the list to Laurence N. Woodworth, chief of staff of Congress’s Joint Committee on Taxation. He wrote in his 2011 book, “Our Journey,” that this was the most important thing he did, “because then we could say with absolute certainty that IRS never began any audit or investigation of any name on that list because of the list.”

Mr. Walters testified to various committees investigating alleged Nixon misdeeds. He left office in April 1973.

USA Today, Former IRS Chief Recalls Defying Nixon:

At his home near Furman University, Johnnie Mac Walters remembers being pressured more than 40 years ago to do what he considered unthinkable. ... In the early 1970s, when embattled President Richard Nixon sought to use the Internal Revenue Service as a weapon to investigate his enemies, the administration turned to Walters, a Hartsville, S.C., native and head of the tax agency, to do the dirty work.

Walters, now 93, said he refused.

The IRS controversy currently dogging President Barack Obama has raised new allegations that the agency has been engaged in political meddling and bias. Obama has denounced as "outrageous" the targeting of conservative political groups by the IRS.

Walters walks with a cane now and is soft-spoken. But the recent IRS developments prompted him to sit down for an interview and resume his personal quest, not for vindication, but to validate his rejection of Nixon's tactics while he was commissioner of Internal Revenue. ...

Some Republicans have tried to link Obama to what the IRS has acknowledged was improper scrutiny of conservative groups seeking tax-exempt status. "I'm distressed at what's happening and particularly with IRS," said Walters, a lifelong Republican. "IRS must be run nonpolitical. Our tax system otherwise will fail and we can't afford that."

June 26, 2014 in IRS News, Tax | Permalink | Comments (8)

Papers from the 2013 IRS-TPC Research Conference: Administration at the Centennial

TPC-IRSThe IRS has released the papers from the 2013 IRS-TPC Research Conference: Administration at the Centennial (abstracts of papers here):

Session #1  Individual Income Tax Dynamics

Session #2:  Business Compliance Behavior

Session #3:  Corporation Income Tax Enforcement

Session #4:  Lessons From Other Tax Administrations

June 26, 2014 in IRS News, Scholarship, Tax | Permalink | Comments (0)

The IRS Scandal, Day 413

Fox News Poll:  Voters Think IRS Emails Were Deliberately Destroyed:

The consensus is: it’s no accident. More than three-quarters of voters -- 76 percent -- think the emails missing from the account of Lois Lerner, the ex-IRS official at the center of the scandal over targeting of conservative groups, were deliberately destroyed. ... That suspicion is shared across party lines, albeit to varying degrees. An overwhelming 90 percent of Republicans think the emails were intentionally destroyed, as do 74 percent of independents and 63 percent of Democrats. Overall, just 12 percent of voters believe the emails were destroyed accidentally. Another 12 percent are unsure.

Poll 26 1

Poll 3

Poll 27 1

Poll 2

Wall Street Journal:  No Confidence: Hardly Anybody Believes the IRS's Story About Lois Lerner's "Lost" Emails, by James Taranto:

The proportion of respondents who believe the IRS's claim to have destroyed the emails accidentally: 12%. That's congressional-approval-rating territory. Seventy-six percent disbelieve the IRS story, and the remaining 12% say they're "unsure." Asked whether Congress should continue to investigate, the ayes had it, 74% to 21%. ...

Each of these developments refutes Obama's claim that there was "not even a smidgen of corruption." And if the public is right that the destruction of emails was a deliberate coverup--and keep in mind that not just Lois Lerner but six other IRS employees are said to have suffered contemporaneous hard-drive crashes--that surely qualifies as "mass corruption," even irrespective of the facts of the underlying scandal.

The Fox poll is a stunning vote of no confidence not just in the Obama administration but in the government itself. Public skepticism of government is a healthy impulse, and in this case it seems fully warranted. A government that cannot inspire even a minimal degree of public confidence is a danger to itself and to the country.

Red State:  An Intellectually Honest Media Would Ask This Question:

Ignore, for a minute, the IRS targeting of conservative groups and the erasure of seven hard drives at the IRS. Yes, ignore all that for a moment.

While the media is doing its best to avoid that subject, with difficulty, it is absolutely and willfully ignoring another IRS scandal that, had it happened in the Bush Administration, would be the lead story of every nightly newscast and above the fold on the front page of every newspaper in America.

We now know that some person or persons at the IRS intentionally and maliciously leaked confidential tax records of a non-profit organization so that gay rights activists could target the donors of the organization for harassment. We know this from the emails of the gay rights activist who obtained the records through, what he described, as “a conduit” from the IRS. He then sent the data to the gay rights group Human Rights Campaign, which then put the records online. The records contained the names and addresses of donors to the National Organization for Marriage. The IRS is not only seemingly targeting conservative groups, but is now admitting to leaking information about a conservative group so others can target their donors.

Yes, the IRS is admitting someone at the IRS did this and is paying the legal fees of the National Organization for Marriage as a result.

The gay rights activist who received and disseminated the information, Matthew Meisel, “invoked his fifth amendment right not to incriminate himself” and he would not identify his conduit.

This all raises a question an honest media would ask: why has Eric Holder refused to investigate and prosecute this?

The American media will not ask this question because the National Organization for Marriage opposes gay marriage. The donors to the group, in the media’s mind, are bigots. To the American media they deserve no protection. They are oppressors.

But an honest media that believed in equal justice under the law would have to ask the question — why will the Justice Department not investigate and prosecute those within the IRS who leaked confidential tax records to political opponents of the group.

Must we wait until a Republican administration does this?

It seems we need more than one special prosecutor to investigate the IRS and Darryl Issa should be holding hearings on this matter. The IRS is not only seemingly targeting conservative groups, but is leaking information about conservative groups so others can target their donors.

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June 26, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Wednesday, June 25, 2014

The IRS Scandal, Day 412

New York Post editorial:  The IRS Smirks:IRS Logo 2

That was quick. During a congressional hearing Monday night, IRS Commissioner John Koskinen — an attorney — asserted the IRS had done nothing criminal.

Rep. Trey Gowdy (R-SC), then asked what criminal statutes he relied on to reach that judgment. Koskinen admitted he hadn’t looked at any.

Less than 24 hours later, America’s top official for archiving federal records, David Ferriero, appeared before Congress. He said the IRS “did not follow the law.”

Not that this will have much effect on Commissioner Koskinen, as smug and imperious as any bureaucrat you will met.

Throughout these hearings, he’s come across less as a professional determined to restore the good name of the IRS than a Democratic Party hack who thinks the IRS is the victim here.

Wall Street Journal editorial:  IRS Email Jeopardy: The Agency Had a Legal Obligation to Retain the Records It Lost:

The IRS is spinning a tale of bureaucratic incompetence to explain the vanishing emails from former Tax Exempt Organizations doyenne Lois Lerner and six other IRS employees. We have less faith by the minute that there is an innocent explanation for this failure to cooperate with Congress, but even if true it doesn't matter. The IRS was under a legal obligation to retain the information because of a litigation hold.

In 2009 a pro-Israel group called Z Street applied to the IRS for tax-exempt status. When the process was delayed, an IRS agent told the group that its application was undergoing special review because "these cases are being sent to a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies." In August 2010 Z Street sued the IRS on grounds that this selective processing of its application amounted to viewpoint discrimination.

Under the Federal Rules of Civil Procedure and legal precedent, once the suit was filed the IRS was required to preserve all evidence relevant to the viewpoint-discrimination charge. That means that no matter what dog ate Lois Lerner's hard drive or what the IRS habit was of recycling the tapes used to back up its email records of taxpayer information, it had a legal duty not to destroy the evidence in ongoing litigation. ...

Attorney General Eric Holder won't name a special prosecutor, but there's still plenty of room for the judge in the Z Street case to force the IRS to explain and answer for its "willful spoliation" of email evidence.

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June 25, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Tuesday, June 24, 2014

The IRS Scandal, Day 411

IRS Logo 2Real Clear Politics:  Halperin on IRS Scandal: If This Was A GOP Admin, "This Story Would Be A National Obsession":

Mark Halperin:  Because when any government agency, particularly one as powerful as the IRS, engages in something that even people sympathetic to the admission says looks weird and suspicious, it's incumbent on all of the national media to aggressively ask more questions. The Republicans in Congress are asking questions. I think with a different administration, one that was a Republican administration, this story would be a national obsession, and, instead, it's getting coverage here and a few other places. But it deserves a lot more questions.

Washington Post op-ed by Jonathan Turley (George Washington):

As federal agencies have grown in size and scope, they have increasingly viewed their regulatory functions as powers to reward or punish citizens and groups. The Internal Revenue Service offers another good example. Like the patent office, it was created for a relatively narrow function: tax collection. Yet the agency also determines which groups don’t have to pay taxes. Historically, the IRS adopted a neutral rule that avoided not-for-profit determinations based on the content of organizations’ beliefs and practices. Then, in 1970, came the Bob Jones University case. The IRS withdrew the tax-exempt status from the religious institution because of its rule against interracial dating on campus. The Supreme Court affirmed in 1983 that the IRS could yank tax exemption whenever it decided that an organization is behaving “contrary to established public policy” — whatever that public policy may be. Bob Jones had to choose between financial ruin and conforming its religious practices. It did the latter.

There is an obvious problem when the sanctioning of free exercise of religion or speech becomes a matter of discretionary agency action. And it goes beyond trademarks and taxes. ... When agencies engage in content-based speech regulation, it’s more than the usual issue of “mission creep.” As I’ve written before in these pages, agencies now represent something like a fourth branch in our government — an array of departments and offices that exercise responsibilities once dedicated exclusively to the judicial and legislative branches. Insulated from participatory politics and accountability, these agencies can shape political and social decision-making. To paraphrase Clausewitz, water, taxes and even trademarks appear to have become the continuation of politics by other means.

Real Clear Politics op-ed:  An Arrogant and Lawless IRS, by Michael Gerson:

Noted management expert and IRS Commissioner John Koskinen was apparently called out of retirement -- like the Ted Williams of evasive, unapologetic bureaucrats -- to destroy what is left of his agency's credibility. ...

In recent congressional testimony, Koskinen admitted that the emails were irretrievably gone; that the "backup tapes" had been erased; and that Lerner's hard drive was apparently destroyed in an aggressive act of recycling. With that settled, Koskinen expressed his "hope that the investigations ... can be concluded in the very near future."

It is a mix of arrogance and delusion that seems designed to incense Republicans. Koskinen had delayed informing Congress of the lost emails for months, even while assuring members they would be provided. "It was my decision that we complete the investigation," he said, "so we could fully advise you as to what the situation was." Translation from management-speak: We wanted to get our story straight before we advised you of anything. Koskinen complained about the breadth of subpoenas and the "piecemealing out" of information.

Translation: We will provide you what we want when we want. "Every email," Koskinen assured the House Ways and Means Committee, "has been preserved that we have." Except the ones they don't have -- and somehow snuffed out, tied to an anvil and thrown into the ocean. ...

[T]he IRS has managed to feed anti-government sentiments by inhabiting anti-government stereotypes. It has undermined respect for authority. And it doesn't seem even to understand the damage it has done.

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June 24, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Monday, June 23, 2014

The IRS Scandal, Day 410

PolitiFact:  Donna Brazile: No Conspiracy Here, IRS Targeted Liberals, Too:

Half True 2The IRS "also investigated liberal groups, groups that had progressive in their name. ... The IRS was basically looking at everybody." Donna Brazile on Sunday, June 22nd, 2014 in comments on CNN's "State of the Union." ...

Brazile is echoing comments Democrats have made for a year. But is she right and the IRS was "basically looking at everybody"?

This question was essentially answered last year by the Treasury Inspector General for Tax Administration, who investigated the IRS’s handling of tax exempt requests between 2010 and 2012. ...

The investigation ultimately found the Cincinnati office used inappropriate criteria to single out certain cases. Over the course of two years, 298 total cases were sent to D.C. for greater scrutiny. According to the investigation, 72 of those groups had the name "tea party," 13 had "Patriot" and 11 had "9/12." The other 202 cases were listed as "other." In 160 of these cases, the application remained open between 206 and 1,138 days, while 108 were approved.

Democrats said 202 is a lot of "other." And later it came out that the word "progressive" was also used to flag applications on another IRS "Be on the Lookout" list.

George also noted that while 16 groups with "progressive" in the name showed up among the 298 cases, that represented just 30 percent of all "progressive" applications. That is in stark contrast to groups with "tea party," "patriot," or "9/12" in their name, of which 100 percent saw their applications held up. ...

So some progressive and liberal groups may have been flagged, and others may have ended up getting swept in the searches run by the Cincinnati office because their names had certain buzz words or phrases, but they didn’t get put through the ringer, at least on par with tea party groups.

Our ruling

Brazile, who did not respond to an email, said the IRS was "looking at everybody" including liberal groups and progressive groups. Yes, some progressive groups did have their tax-exempt status applications flagged as the IRS reviewed whether nonprofit groups were engaging in political activities.

But it wasn’t to the same degree as tea party and other conservative groups, nor did it result in the same actions. The list targeting tea party groups resulted in delayed processing that in some cases lasted almost three years and inquiries into their donors. Further, the inspector general found tea party groups were systematically singled out as part of an office-wide effort, while progressive groups were not.

Weighing all of this, we rate Brazile’s comments Half True.

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June 23, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Sunday, June 22, 2014

The IRS Scandal, Day 409

IRS Logo 2Tax Analysts Blog:  The Coverup Is Usually Worse Than the Crime, by Christopher Bergin:

[D]o we have a coverup at the IRS? Has a crime been committed? I don’t know. What I do know is that I am deeply disturbed by all this.

Maybe it’s just sloppy record-keeping, which would be bad enough. Most of the government’s business is now conducted digitally, and those records need to be properly handled. Or is it worse? Is the IRS deliberately keeping things from the public? Excuse my cynicism, but the IRS’s penchant for secrecy is what led Tax Analysts, using the new Freedom of Information Act, to sue the agency in the 1970s to force it to release private letter rulings. There have been several subsequent lawsuits to pry records that should have been public out of the agency’s hands. ...

[T]he real problem here is that the IRS can’t make this story go away, and that starts smelling like a coverup. I know tax professionals who are now starting to think the worst and who are having trouble getting behind the IRS. And I am one of them. ...

The exempt organization issue is now more than just fodder for conservative blogs. The IRS and the Treasury Department need to start being square with the American people and their Congress. Even if you hate the IRS -- and I do not -- a wounded and compromised tax collector (whether or not most of its wounds are self-inflicted) does no good for the country.

(Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

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June 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)